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Fossil Fuel Subsidies

Have you ever wondered what government benefits the fossil fuel industry enjoys? Here is a comprehensive breakdown: Fossil Fuel Subsidies.

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Thursday, September 13, 2012

In a previous article for National Review Online, I reported on how easy it is to enable the flex-fuel capabilities in modern automobiles, allowing them to run equally well on methanol, ethanol, or gasoline, thereby giving the customer fuel choice and, with it, a substantial opportunity for savings. For example, at current gasoline and methanol prices, the miles per dollar achieved by running my 2007 Chevy Cobalt on methanol is 40 percent higher than that possible with gasoline. This is not new technology: As extensively documented by Ford’s former director of alternative-fuel vehicle research, Roberta Nichols, the Big Three produced tens of thousands of highly successful methanol-gasoline flex-fuel cars for the state of California more than 20 years ago.

At one time, adding flex-fuel capability to a car increased its production cost by about $100. That is no longer true. Currently, all new gasoline-powered cars sold in the U.S. are flex-fuel cars, but only about 5 percent are being sold as such. The rest are being marketed with their flex-fuel capability disabled by their manufacturers.

This is a very curious situation. One may well ask, why should an automaker choose to disable a useful feature that it has built into its cars? It seems to make no sense for any company to take measures to degrade its own product. Furthermore, given the fact that the auto industry has a fundamental interest in low fuel prices — consumers have only so much they can spend on transportation, and it either goes for cars or for gas — why should it choose to cripple a capability that otherwise could serve to erode prices at the pump? It seems like a very bizarre policy — until you look at who owns and controls the auto companies.

The problem is that the automobile companies are not independent entities capable of pursuing their own interests. Rather, they are owned and controlled by organizations that are much more heavily invested in oil.

Click image to see it larger.

The largest automobile company in the world is Volkswagen. Who owns it? The answer is the government of Qatar. That’s right, the sovereign wealth fund (SWF) of Qatar, an OPEC emirate, owns 17 percent of Volkswagen — potentially a controlling interest — as well as 10 percent of Volkswagen’s Porsche subsidiary. One of the Qatar SWF board members, Hussain Ali Al-Abdulla, accordingly sits on the supervisory board of Volkswagen AG. Elsewhere in Europe, the same story holds. For example, the Kuwait SWF owns 6.9 percent of Daimler/Mercedes, 20 percent of Spyker/Saab, and 100 percent of Aston Martin, which it acquired from Ford for $450 million. The Abu Dhabi Investment Authority, one of the sovereign wealth funds of the United Arab Emirates, owns 9.1 percent of Daimler/Mercedes and 40 percent of Mercedes-Benz Grand prix, and has a $2.7 billion investment in Chrysler. In addition, the Abu Dhabi Investment Authority has a major position in Fiat/Ferrari, on whose board it is represented by its managing director, Khaldoon Khalifa. The government of Libya also owns 2 percent of Fiat/Ferrari, which in turn owns 52 percent of Chrysler.

What about the two biggest American auto companies, GM and Ford? The dominant positions in these companies are held by major Wall Street firms whose collective energy holdings exceed $700 billion. Thus, while the $9 billion these funds have invested in GM and the $24 billion placed in Ford are of great weight to the auto companies, the funds themselves are far more concerned about protecting their investments in oil.

It is thus futile to hope that, left to their own devices, these companies will do anything to endanger the ability of OPEC to loot the world. Rather, they will continue to protect the monopoly the oil cartel holds on the world’s vehicle-fuel supply. If the auto companies were free agents, they would act to break the fuel monopoly that is so damaging to their own interests and those of their customers. But they are not, and so they won’t.

The situation is a case of a conspiracy in restraint of trade, with the national interest at stake. It is not just a matter of saving consumers gas money. High oil prices severely damage our economy. Furthermore, as current events concerning Iran make clear, it is essential that the U.S. have copious alternative sources of liquid fuel whose availability and price are not determined by events in the unstable Middle East. This imperative provides strong justification for government intervention.

Unfortunately, rather than move to break the hold of the oil cartel on the management of the auto companies, the Obama administration has acted to reinforce it. When GM went bankrupt, the president appointed Wall Street insider Steven Rattner as his auto czar, charged with reorganizing America’s leading automaker. However, instead of forcing GM to implement flex-fuel capability across the board, Rattner fired GM CEO Rick Wagoner, who was making tentative moves in that direction, and replaced him with Ed Whitacre, a director of Exxon. Subsequently, Rattner moved Whitacre up to be GM’s chairman of the board, giving the CEO position to Dan Akerson, a managing director of the Carlyle Group, a Saudi-funded business partnership. Under this new “friends of OPEC” management, Wagoner’s earlier commitment to have half of all GM cars be flex fuel by 2012 was, not surprisingly, shelved.

Unless Congress passes legislation to force the opening of the vehicle-fuel market to competition from non-petroleum fuels, this situation is not going to be rectified. It is for this reason that the Open Fuel Standards bill (H.R. 1687, S.B. 1603), which would require that most new cars sold within the United States offer fuel choice, has been introduced into the House and the Senate with bipartisan support.

As Adam Smith, the founding thinker of free-enterprise economics, wrote in The Wealth of Nations: “To prohibit a great people . . . from making all that they can of every part of their own produce . . . is a manifest violation of the most sacred rights of mankind.” In restricting their vehicles to use only the fuel offered by the Islamist-led oil cartel, the automakers are preventing America from making use of her copious non-petroleum energy resources. Despite being bailed out — in some cases repeatedly — by the public purse, the automakers have shown little public spirit. Rather, they have acted in accord with the larger portfolios of the cartel-linked or conflicted organizations and individuals who have bought into or been placed into their management, to the great detriment of not only their own customers and retail stockholders, but the economy and vital national-security interests of the United States.

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comments:

Wow, this is really excellent investigative research and reporting. I never knew any of this information until now.

My focus has been on how the reputation of methanol has been severely (inside the USA) damaged by the Ethanol lobby. See the lawsuit between Methanex and ADM at the State Department.

Blogger Rapier recently wrote, "The program logged 200 million miles of driving on methanol vehicles, but it was killed in 2005, which was the first year of the Renewable Fuel Standard that set ethanol on its meteoric growth path."

The idea that methanol, no matter how cheap it can be produced, will be allowed in the fuel system in America based upon what I know about the Ethanol lobby and now the oil interests in the article above...seems very unlikely.

The whole edifice could crumble if one single state decided to act in its own interest and those of their citizens. My vote as the most likely candidate to break away from the Ethanol-EPA stranglehold is Texas, which is both a major producer of natural gas and has plenty of methanol refining capacity.

If the state legislature prohibits sale of any new cars that are not fully methanol capable, that would upend the new car sales market nationwide and force methanol onto the market. With Texas motorists paying $1.50 per gallon less than the rest of the nation on a mileage-equivalent basis, the days of the ethanol scam would indeed be numbered.